All posts tagged RBA

ASIC and the ATO have on numerous occasions highlighted the dangers of buying property through one organisation that organises all steps in the process. they call them “one-stop-shops”. This is where you get all or most of the following services for a new SMSF from one associated group:

Property Adviser who does initial training or introduction to property investing, then pointing you to associated service providers

Accounting and Audit to set up and do the admin for your new SMSF

Financial Planner to prepare a Statement of Advice on the suitability, risks, costs, benefits of and SMSF and benefits lost in moving to an SMSF

Conveyancer to process the property transaction

Mortgage Broker to sort out the finance

One of the issues is that they may not be very transparent about how they’re interconnected. Always ask each party what their fees are and do they pay any form of remuneration, fees, referral commission charges etc to any other party.

SMSF property one-stop shops

397 – “The use of property one-stop shops is an area of significant concern. These models tend to promote the purchase of geared residential property through an SMSF, arranged by groups of related real estate agents, developers, mortgage brokers, accountants and financial advisers.

398 – The one-stop shop model creates inherent conflicts of interest that may affect the advice given to a client to set up an SMSF, make subsequent investments, or use specific services. These conflicts can arise from direct or indirect commissions, referral payment arrangements, representative remuneration structures or even management pressures.

399 – We have previously achieved enforcement outcomes against operators of property one-stop shops involving SMSFs—such as Park Trent PropertiesGroup Limited and Anne Street Partners. In light of the findings from this project, we will continue to conduct surveillance on these property one-stopshop operators and take enforcement action where appropriate.

400 – We will also work with other regulators, including the ATO and APRA, to develop a holistic approach to addressing problems that we are seeing with property one-stop shops.”

Despite these warnings ASIC’s further research has shown that people still value the idea of a One-stop-shop for their advice needs when buying property. I assume this is because people just like simplicity and want someone to manage the process for them. Well you can have that simplicity without the inherent dangers involved by choosing to work with professionals who charge a fee for service for their advice and do not accept commission or any remuneration from other parties or fully disclosed like such as with a Mortgage Broker who is remunerated by the lender.

So when thinking about a property for your Self Managed Superannuation Fund or any asset really, you should always ensure that at least some of the providers of services are working in your Best Interests. Financial Planners are obligated by law to act in their Client’s Best Interest but we all know that money , fees or commissions may blur the lines. So don’t be afraid to ask questions about:

who is providing you the advice

how are they being paid,

Are they receiving any other form of remuneration

how are they connected to the other service providers

It is important for your professional service providers to work on strategies on your behalf but that does not mean they need to be paying fees to each other which ultimately increases your costs. Let me explain how I work with other professional service providers for example:

I do not provide specific advice on “the property” for you and stick to my area of expertise; whether an SMSF is right for you and how you can use it to achieve your goals. I charge you a specific fee for this advice which is outlined in a Letter of Engagement before you commit to my service. If you want ongoing advice, again I explain it up front in an Ongoing Service Agreement.

I provide you with a range of SMSF Admin and Audit solutions from other providers that will suit your needs. I have 4-5 options to ensure you can choose what suits you with our guidance and often that may be to use your current Accountant. I do not receive any commission, fees or other remuneration from these providers. I simply insist they take good care of my clients

If people want help choosing a property, again I have a number of trusted Buyer’s Agents throughout the country that are on hand to provide advice. I do not receive any commission, fees or other remuneration from these providers. I simply insist they take good care of my clients.

If you need assistance in getting finance arranged then I refer you to a number of brokers who have experience and expert knowledge in SMSF Lending. I do not receive any commission, fees or other remuneration from these providers. I simply insist they take good care of my clients.

Legal Advice/Conveyancing – If you do not have a current lawyer or they do not have SMSF experience then I refer clients to a number of lawyers / conveyancers with specific experience and expertise in the rules around SMSFs for property transactions, powers of attorney and estate planning.

I do not receive any commission, fees or other remuneration from these providers. I simply insist they take good care of my clients.

Can you say the same about your service providers?

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why not contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Sometimes you can’t sit back and accept policy changes by governments. You have to step up to stop bad policy regardless of your political persuasion.

I see that Geoff Wilson from Wilson Asset Management is leading a charge against the Labor proposed policy to deny a refund of excess franking credits. You can read more about his efforts in this article here and sign his petition here

The problem is that many people don’t understand the imputation system so when I sit with clients and we talk about what it means for them we have to put it in terms they understand. For many of my self funded retirees it will mean $5000 to $20,000 loss in income per year going forward if past in to legislation. So they may still be able to meet their basic living expenses but it is the little extras that they worked hard to save for that they will lose and it feels like they are been punished for trying to fund their retirement.

It means cutting out the holiday, the presents for the grandkids, the renos on the bathroom or any other little things they had saved hard to be able to afford. So once alerted to the potential loss of income most are angry but too few have been made aware of it by their tax agents and advisors.

Lets get the word out there so people understand what they will be losing

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why not contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

One of my most popular long term blogs is Why Self Managed Super Funds Should Have A Corporate Trustee and thankfully most new SMSFs are finally being set up with a corporate trustee from the outset. But that leaves many existing SMSFs with Individual Trustees and I get numerous questions about the cost of the transfer process. If you are considering an SMSF the I would encourage you to read through that article and feel free to pass it on to your friends, family or advisors.

Bullion/Coins – just usually require a request in writing, copy of the Company Certificate of Registration and copy of the Trust Deed Amendment

Ongoing Costs

Costs should not be a deterrent as a sole Purpose Trustee company ASIC review fee is only $53 per year and you can lock that in and get a discount for up to 10 years. See here for more detail on that discount.

Don’t feel like trying to do all this yourself? How much do we charge for guiding you through the process

If you require assistance and advice on making the changes our advice fee is approximately $3,300 as it is a time consuming process. This includes:

Review of your current circumstances and portfolio to see what needs to be done

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why not contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Self-funded retirees have felt like punching bags for the last few years with hit after hit chipping away at their ability to fend for themselves within the rules they had relied upon in making their savings plans over the last 30 years. Combine the changing of goal posts with low interest rates and blue-chip underperformance from the banks, telcos and utilities and they are not to be blamed for thinking a hex had been put on them.

So an SMSF friendly budget is the welcome news coming out of the 2018-19 Federal Budget. With many of us SMSF Specialists and you the SMSF members still working through the wide-reaching and complex superannuation changes which took effect from 1 July 2017, this Federal Budget will provide much needed stability while looking to reduce costs for SMSFs and prove additional flexibility.

The key changes proposed for SMSFs and superannuation are:

Three-yearly audit cycle for some self-managed superannuation funds.

The Government will change the annual SMSF audit requirement to a three yearly requirement for SMSFs with a history of good record keeping and compliance. The measure will start on 1 July 2019 for SMSF trustees that have a history of three consecutive years of clear audit reports and that have lodged the fund’s annual returns in a timely manner.

One concern I have is if trustees make a mistake in year 1 that is not discovered until year 3, will they face 3 years interest charges on the penalties.

Expanding the SMSF member limit from four to six

As already announced, the Federal Government confirmed its decision to expand the number of members allowed in an SMSF from four to six. Expanding the definition of an SMSF to a fund with a maximum of six members will provide greater flexibility in how funds can be structured.

Whilst there are some concerns over making decisions I like this move where as mum and dad in their later years want to reduce their involvement but they want help rather with the fund rather than moving to separate retail funds. It may help prevent elder Financial abuse where instead of one child assuming control of the SMSF, more of the family could be involved. Temptation and inheritance impatience is always there for one person but add a few others in to the decision making and the risk of financial abuse reduces considerably.

Also 6 members of a family small business allows for later drawdown from the parents accounts and recontribution for younger family members to retain business real property in the fund after death of the older generation.

Note; you will need to ensure your trust deed allows more than 4 members and it most likely won’t so you will need to update the trust deed first before accepting new members. READ THE DEED

Over 65, 1 additional year Work test exemption

The Government will provide more time for Australians aged 65 to 74 to boost their retirement savings, by introducing an exemption from the superannuation work test.This exemption will apply where an individual’s total superannuation balance is below $300,000 and will permit voluntary superannuation contributions in the first year that they do not meet the work test requirements.

This is good but limited in its scope as more and More people have reached the $300k level because of Super Guarantee Contributions for most since 1992 or before for some. But it is a female friendly move as they are most likely to have lower balances

Life insurance cover in super to be opt-in for individuals under 25 years of age.

The Government will legislate that life insurance cover in superannuation will be opt-in for those individuals under 25 years of age or with account balances under $6000 to ensure that unnecessary fees do not erode smaller balances.

Life insurance cover will also cease where no contributions have been made for a period of 13 months.

If you have kept a retail or industry fund open with small balances to retain insurances you may need to put a small annual contribution in place (I would recommend $100 per half year just in case) to ensure it does not get tagged as dormant.

Older Australian package

The Government introduced the following measures to enhance the standard of living older Australians:

• Increase to the Pension Work Bonus from $250 to $300 per fortnight.

• Amendments to the pension means test rules to encourage the take up of lifetime retirement income products.

• Expansion of the Pensions Loan Scheme to allow more Australians to use the equity in their homes to increase their incomes.

I think this will be a major bonus for those with a lumpy asset or shareholding’s they wish to retain but need more cashflow. At a current rate of 5.25% the Pensions Loan Scheme is a very decent rate and security that you are borrowing from a bank or predatory lender based on a brokers conflicted commissions.

Personal income tax bracket changes (take most these with a pinch of salt!)

The Government has provided personal income tax relief to lower and middle income earners. A Low and Middle Income Tax Offset will now be available for individuals with incomes of up to $125,333.

The $87,000 income threshold, above which a 37 per cent tax rate applies, will increase to $90,000.

Other changes

• A surplus of $2.2 billion is expected in 2019-20, one year ahead of schedule.

• The Government’s planned increase in the Medicare levy from 2 per cent to 2.5 per cent, to fund the National Disability Insurance Scheme, will now not go ahead due to increased tax revenues.

How can we help?

Some of these measures may open up strategy options for you and your family.

If you have any questions or would like further clarification in regards to any of the above measures outlined in the 2018-19 Federal Budget, please feel free to give me a call or email to arrange a time to meet or talk by phone so that we can discuss your particular requirements in more detail.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

For the last decade every time I saw the SMSF statistical results issued by the ATO I was dismayed by the number of new SMSF funds being set up with Individual Trustees, often well over 80% each year. I assumed this was people setting up self managed superannuation funds without good advice or reasonable research.

So I was delighted to see the latest stats provided by the ATO for 2015-16 but including some 2016-17 data which has seen a complete turnaround with over 80% of new SMSFs being set up with Corporate Trustees and the overall numbers on existing funds turning in favour of using a company.

SMSF trustee structure

At 30 June 2017, 57% of all SMSFs had a corporate trustee rather than individual trustees.

Of newly registered SMSFs in 2015 to 2017, on average 81% were established with a corporate trustee.

A few times over the last 5 years I have run polls asking professionals in the SMSF industry whether they would recommend individual or corporate trustees. Every time the overwhelming result is in favour of Corporate Trustees.

So over 90% of professionals who deal day in day out with SMSF issues and like myself deal with some of the fallout when approached by grieving widows(ers), recommend a Corporate trustee for an SMSF.

Costs

Costs should not be a deterrent as a sole Purpose Trustee company only costs about $600-$880 to set up and the ASIC review fee is only $48 per year and you can lock that in and get a discount for up to 10 years. See here for more detail on that discount.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

I love working on strategies for clients but sometimes you just need a true expert or excellent software to crunch the numbers. I was looking for some ideas on downsizing as it had become clear to me that is was not the panacea to retirement funding that client’s often believe it would be. So I was looking for an in-depth article working through the numbers and Rob van Dalen of Optimo Financial has kindly stepped up to provide the required analysis in our latest guest blog. Rob’s main warning is to do your sums on your own particular situation before leaping in to a downsizing strategy.

Do Your Sums Before Downsizing

A popular subject often talked about at family barbecues is; “should mum and dad downsize when they get older?” Often it’s assumed that downsizing is the best option moving forward. To test and possibly challenge this we decided to run a few scenarios through our Pathfinder Financial Optimisation Platform to find out. Read our findings below;

1.1 The Clients

In this example, we look at the case of David and Alice who have recently retired and who will soon both be eligible for the age pension. David was born on 11 April 1953 while Alice was born on 15 November 1952. They have a modest $400,000 in super. Their other assets are the family home valued at $900,000 and personal assets valued at $40,000. They have no debt. They would like to have $50,000pa (increasing at CPI) for living expenses. They are worried that their super is not sufficient to maintain their desired income. Consequently, they have contemplated selling the family home and moving to a cheaper area where they could buy a new home for $500,000. Will downsizing leave them better off?

1.2 Assumptions

We have assumed in the analysis:

· Pension fund returns 5.7%pa;

· House selling costs 2.5%;

· House purchase costs 6% (including stamp duty);

· House prices in the long term increase at 3%pa;

· CPI 2.5%p.a.

1.3 Scenario 1: Retain Current Home

We first examine the scenario where David and Alice retain their current home. In this case, they will receive income from the government pension as well as drawing a pension from their own super. Figure 1 shows the sources of their income over a 20 year period.

David and Alice receive approximately 64% of their income from the age pension and associated benefits (see also Figure 6 below). The remainder is withdrawn from their pension account through withdrawing the minimum amount each year (plus some extra for the first few years until they become eligible for the age pension).

Their age pensions are limited approximately equally by the income and assets tests. After 20 years, David and Alice have a combined wealth of $1,960,000 most of which is from the family home.

1.4 Scenario 2: Downsizing Family Home in 2016/17

The next scenario sees David and Alice downsizing their family home from $900,000 to $500,000 in 2016/17. Their ages enable them to deposit the excess funds generated from the house sale into super as non-concessional contributions. However, a Pathfinder® analysis shows that increasing their superannuation balance reduces their age pension because, unlike the family home, super counts towards the age pension assets test and is deemed for the income test. Figure 2 shows the results of the age pension assets and income tests for David and Alice and we can see that their pension is now limited by the assets test. For a home owning couple, the age pension reduces at a rate of $3 per fortnight for each $1,000 of assets in excess of $575,000. This taper rate was doubled from 1 January 2017, so now has a much larger impact on the pension received.

So in 2019/20, for example, their age pension reduces from $36,337 to $9,004 and they must draw more from their pension account to make up the difference. Their wealth after 20 years is now projected at $1,581,000 or about $379,000 less than in the first scenario.

1.5 Scenario 3: Downsizing Family Home in 2027/28

In the third scenario, we examine the possibility that David and Alice defer the downsizing for ten years, say in 2027/28. Their age pension is initially unaffected until they downsize the family home, but after that time their age pension payments are severely curtailed. Their projected wealth after 20 years is now $1,714,000. This is a better outcome than in the second scenario but is still $246,000 less than if they keep their existing home.

1.6 Comparing the Scenarios

Figure 3 gives a comparison of the annual age pension received in the three scenarios. You can see that the scenario where they retain their current home, yields a higher pension and that their pension drops sharply after the sale of their house in the other two scenarios.

Figure 4 shows the total age pension payments over the 20 years. You can see that by keeping their original family home, their total pension entitlement is significantly higher than either of the downsizing options we analysed.

Figure 5 shows the total wealth over the 20 year period analysed.

The first point to note is the importance of the age pension towards retirement income, depending, of course, on the particular circumstances. Figure 6 shows the composition of retirement income over the 20 years analysed for Scenario 1.

1.7 Conclusions

In this example, the age pension plus estimated concession card benefits contribute about 64% to income while the account based pensions contribute about 36%. The second point is that downsizing the family home may not result in improving the overall situation as an increase in payments from a private pension may be more or less offset by a decrease in the age pension.

1.8 Pathfinder Learnings

In our Pathfinder® analysis, we find, perhaps surprisingly, that a couple could be considerably worse off by downsizing the family home. Any funds added to super by the income generated from downsizing could be dissipated by a reduction in the age pension. In addition, the costs of sale and repurchase of a family home are significant.

The age pension can provide a buffer between retirement savings and lifestyle expenses.

For persons eligible for the age pension, downsizing the family home may leave you worse off financially because of the impact of the age pension income and assets test.

Thank you Robby

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

There are many rumours and well-intentioned but wrong advice out here on the internet about how to maximise Centrelink or DVA pension by “gifting assets” before applying. I want to clear up some of those misunderstandings

The gifting and deprivation rules prevent you from giving away assets or income over a certain level in order to increase age pension and allowance entitlements. For Centrelink and Department of Veteran’s Affairs (DVA) purposes, gifts made in excess of certain amounts are treated as an asset and subject to the deeming provisions for a period of 5 years from disposal.

Acknowledgement: I have relied on the excellent guidance of the AMP TAPin team for the majority of the content in this article. They write great technical articles for advisors and I try and make them SMSF trustee friendly.

What is considered a gift for Centrelink purposes?

For deprivation provisions to apply, it must be shown that a person has destroyed or diminished the value of an asset, income or a source of income.

A person disposes of an asset or income when they:
− engage in a course of conduct that destroys, disposes of or diminishes the value of their assets or income, and
− do not receive adequate financial consideration in exchange for the asset or income.

Adequate financial consideration can be accepted when the amount received reasonably equates to the market value of the asset. It may be necessary to obtain an independent market valuation to support your estimated value or transferred value or Centrelink may use their own resources to do so..

Deprivation also applies where the asset gifted does not actually count under the assets test. For example, unless the ‘granny flat’ provisions apply, deprivation is assessed if a person does not receive adequate financial consideration when they:

− transfer the legal title of their principal home to another person, or
− buy a new principal home in another person’s name.

What are the gifting limits?

The gifting rules do not prevent a person from making a gift to another person. Rather, they cap the amount by which a gift will reduce a person’s assessable income and assets, thereby increasing social security entitlements.

There are two gifting limits.

A person or a couple can dispose of assets of up to $10 000 each financial year. This $10, 000 limit applies to a single person or to the combined amounts gifted by a couple, and

An additional disposal limit of $30 000 over a five financial years rolling period.

The $10,000 and $30,000 limits apply together. That is, although people can continue to gift assets of up to $10 000 per financial year without penalty, they need to take care not to exceed the gifting free limit of $30 000 in a rolling five-year period.

What happens if the gifting limits are exceeded?
If the gifting limits are breached, the amount in excess of the gifting limit is considered to be a deprived asset of the person and/or their spouse.

The deprived amount is then assessed as an asset for 5 anniversary years from the date of gift. It is assessed as an asset for asset test purposes and subject to deeming under the income test.
After the expiration of the 5 year period, the deprived amount is neither considered to be a person’s asset nor deemed.

Example 1: Single pensioner – gifts not impacted by deprivation rules

Sally, a single pensioner, has financial assets valued at $275,000. She has decided to gift some money to her son to improve his financial situation. Her plan for gifting is as follows:

Financial year

2017/18

2018/19

2019/20

2020/21

2021/22

2022/23

Amount gifted

$6,000

$6,000

$6,000

$6,000

$6,000

$6,000

With this gifting plan, Sally is not affected by either gifting rule. This is because she has kept under the $10,000 in a single year rule and also within the $30,000 per rolling five-year period.

Example 2: Single pension – Gifts impacted by both gifting rules

Peter is eligible for the Age Pension. He has given away the following amounts:

Financial year

Amount gifted

Deprived asset assessed using the $10,000 in a financial year free area rule

Deprived asset assessed using the $30,000 five-year free area rule

2017/18

$33,000

$23,000

$0

2018/19

$2,000

$0

$0

In this case, $23,000 of the $33,000 given away in 2017/18 exceeds the gifting limit (the first limit of $10,000) for that financial year, so it will continue to be treated as an asset and subject to deeming for five years.
In 2018/19, while gifts totalling $35,000 have been made, no deprived asset is assessed under the five-year rule after taking into account the deprived assets already assessed, ie $33,000 + $2,000 – $23,000 = $12,000, which is less than the relevant limit of $30,000.

Example 3: Couple impacted by both gifting rules

Ted and Alice are eligible for the Age Pension. They give away the following amounts:

Financial year

Amount gifted

Deprived asset assessed using the $10,000 in a financial year free area rule

Deprived asset assessed using the $30,000 five-year free area rule

2017/18

$10,000

$0

$0

2018/19

$13,000

$3,000

$0

2019/20

$10,000

$0

$0

2020/21

$10,000

$0

$10,000

2021/22

Any gifts in 2014/15 will be assessed as deprived assets under the five-year rule

In this case, $3,000 of the $13,000 given away in 2018/19 exceeds the gifting limit for that year, so it will continue to be treated as an asset and subject to deeming for five years. The $10,000 given away in 2020/21 exceeds the $30,000 limit for the five-year period commencing on 1 July 2017, so it will also continue to be treated as an asset and subject to deeming for five years.

Are some gifts exempt from the rules?

Certain gifts can be made without triggering the gifting provisions. Broadly speaking, these include:
− Assets transferred between the members of a couple. A common example is where a person who has reached Age Pension age withdraws money from their superannuation and contributes it to a superannuation account in the name of the spouse who has not yet reached age pension age.
− Certain gifts made by a family member or a certain close relative to a Special Disability Trust. For more information on Special Disability Trusts, refer to Department of Human Services – Special Disability Trusts.
− Assets given or construction costs paid for a ‘granny flat’ interest. See Department of Human Services – Granny Flat Interest for further detail.

Trying to be too smart – Gifting prior to claim

Contrary to what many read on the internet any amounts gifted in the five years prior to accessing the Age Pension or other allowance are subject to the gifting rules

Deprivation provisions do not apply when a person has disposed of an asset within the five years prior to accessing the Age Pension or other allowance but could not reasonably have expected to become qualified for payment. For example, a person qualifies for a social security entitlement after unexpected death of a partner or job loss.

Gifting and deceased estates

The gifting rules apply to a person’s interest in a deceased estate if the person does any of the following:

− Gives away their right to their interest in a deceased estate for no/inadequate consideration,
− Directs the executor to distribute their interest in a deceased estate for no/inadequate consideration, or
− After the estate has been finalised, gives away their interest in a deceased estate to a third-party for no/inadequate consideration.
The above rules apply even if the deceased died without a will.

Gifting and death of a partner
In some circumstances, couples in receipt of a social security benefit may give away assets prior to death of one of them. Prior to death, any deprived assets would have been assessed against the pensioner couple for five years from the date of the disposal. Now that a member of the couple has passed away, how will the deprived assets be assessed for the surviving partner?
The amount of deprivation that continues to be held against a surviving partner depends on who legally owned the assets prior to death.

Table 1: Gifting and death of a partner

Legal owner of the deprived asset

Assessment of deprived assets

jointly,

does not change.

by the deceased partner,

is reduced to zero.

by the surviving partner,

increases by the amount held against the deceased partner by the outstanding balance held against the deceased partner.

Example 4: Death of a partner

Daryl (age 84) and Gail (age 78) gifted an apartment worth $260,000 to their son Ethan on 1 July 2019. At the time the gift was made, Centrelink assessed $250,000 as a deprived asset. Daryl passed away on 1 July 2020.
The treatment of the deprived assets for Gail will depend on who legally owned the assets prior to Daryl’s death. The impact of different ownership options is shown below:

Legal owner of the deprived asset

Assessment of deprived assets

jointly,

Half of the asset value of the deprived asset will be assessed against the surviving spouse. As the amount of the deprived asset is $250,000, only $125,000 will be assessed against Gail

by the deceased partner,

No amount will be assessed against the surviving partner. As the amount of the deprived asset is $250,000, the amount assessable to Gail is $0.

by the surviving partner,

The full amount will continue to be assessed against the surviving partner. As the amount of the deprived asset is $250,000, the amount assessable to Gail remains at $250,000.

Want a Centrelink Review or are you just looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why not contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Do it! make this the year to get organised or it will be 2028 before you know it.

Please consider passing on this article to family or friends. Pay it forward!

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

There are all sorts of unexpected consequences coming out of the changes to the superannuation rules. As a result of moving funds over $1.6m back to accumulation to meet the Transfer Balance Cap (TBC), you may in fact now qualify for the Commonwealth Seniors Health Care card.

How?

There may be a silver lining to the new $1.6 million transfer balance cap (TBC) for some SMSF members. Having less money in an account based pension and more money in accumulation or other assets may result in some SMSF members being entitled to receive the Commonwealth Seniors Health Card (CSHC). This is because amounts held in accumulation phase are not deemed for the CSHC and are not included in a member’s personal taxable income.

Now if the excess over the $1.6m is/was withdrawn out of superannuation, whether it will count as income for the CHSC will depend on how the client invests it. for example financial investments such as shares, rented investment property and interest will be deemed but a Holiday home not rented out will not be deemed towards the CSHC income test.

Older pensions may be even more forgiving!

Income from an account based pension is deemed under the usual Centrelink deeming rates unless the account based pension commenced before 1 January 2015, and the client was entitled to the card before 1 January 2015 and continues to hold the card. This is known as the grandfathering rules.

For SMSF members who are not eligible for the grandfathering rules, holding a significant amount of money in an account based pension means that they have a lower likelihood of being eligible for a CSHC. Prior to 1 July 2017, for most SMSF members it was more beneficial to hold as much as possible in an account based pension for tax purposes even if this meant they were ineligible for the CSHC. The tax savings on the excess would have outstripped the CSHC benefit.

However, from 1 July 2017, SMSF members can only hold up to $1.6 million in an account based pension and if they are also receiving defined benefit pension income the amount which can be held in account based pensions will be lower. Depending on other income the member receives, this may result in them now being entitled to the CSHC.

You don’t believe me? The following example explains how this works in a simple scenario:

Example – single person

James is single and is age 67. In the 2016 -2017 financial year, he had $2 million in his account based pension, and no other income.

The deemed income from his account based pension is calculated as $64,247 based on deeming rates and thresholds as at 1 July 2017. His deemed income exceeds the income threshold of $52,796 for the CSHC and therefore he is not entitled to a CSHC.

On 30 June 2017, he rolls $400,000 back to accumulation leaving $1.6million in his account based pension.

The deemed income on $1.6 million is $51,247 and is under the income threshold of $52,796 (20 March 2017) meaning that James is entitled to a CSHC after rolling back money from his account based pension to accumulation.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Client Question : My next question is about the threshold income level at which my wife and I will start to pay personal tax in 2017-18. I read “about $28,000” in the paper the other day for my situation (age >65), but my wife does not turn 65 until 2018, so her tax-free level may be different. It would be useful to know these numbers in the case we decide to take some lump sums out of super because of the new limits. We are considering investing some money tax-free in our personal names, free of SMSF red tape.

Personal Tax-free Thresholds
The amount you can earn before you have to pay tax, actually depends on your age.

Under 65

For those people under age 65, the effective tax-free threshold is currently $20,542. How do we calculate this amount? Well, if you look at the ATO’s current Individual income tax rate table, you pay no tax on the first $18,200 you earn in a year.

However, you also get the benefit of the full low income tax offset if you earn below $37,000. That means the tax office will offset up to $445 from the tax you would normally have to pay. So you can earn another couple of thousand dollars before you have to pay tax.

How much can I earn before paying taxes after age 65

For those who have reached age pension age, they can earn even more without paying tax. If you are over 65, you get access to the Seniors and Pensioners Tax Offset (SAPTO). This reduces or eliminates the tax that would normally be liable to pay on some additional income

Using the SAPTO benefit, the amount you can earn each year as a pensioner before having to pay tax, is:

$32,279 for single people,

$28,974 each for members of a couple or $57,948 combined.

The beauty of this benefit is that for clients in SMSF Pension phase any income drawn from a super fund income stream once over 60 is tax-free and non-assessable, meaning it doesn’t count towards the above thresholds.

Based on an earnings rate of 5% this means that a couple could have over $500,000 in each of their names and not pay any tax. But be careful as if you are investing in growth assets then triggering capital gains in the future may mean exceeding these thresholds where as within the SMSF the CGT on pension assets is NIL and 10-15% in accumulation.

Also consider the tax position if you are likely:

to receive an inheritance

large capital gain on an asset he’d outside super

to have one parter live significantly longer (they may end up with large amounts outside the super system)

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

The changes to the superannuation system, announced by the Australian Government in the 2016–17 Budget, have now received royal assent and the finer details of how to implement them have been released. While the government claim these changes were designed to improve the sustainability, flexibility and integrity of Australia’s superannuation system, they did not work with industry or the ATO before announcing them and as such it has been a nightmare to try to get your head around what the actual changes are and how strategies need to be implemented to manage them.

As a result we are getting last-minute guidance from the ATO and software providers as well as SMSF, Industry and Retail Super providers. The government have back-flipped on some measures, amended others because of collateral damage and tightened other measures for obscure reasons. With most of these changes commencing from 1 July 2017 I have tried to put some useful links together.

A short video overview of the changes is provided below. I have provided more detailed information links and will update these as they are progressively published to help you understand the changes, how they may affect you, and what you may need to know and do now, or in the future as a trustee of a self-managed super fund (SMSF). Even more detailed information is available to help you understand the changes, including for some topics, law companion guidelines (see below) to provide certainty about how the changes will be administered.

Law Companion Guides

For those who wish to dive in to the detail please view the Law Companion Guides below. A law companion guideline is a type of public ruling. It gives the ATO view on how recently enacted law applies. It is usually developed at the same time as the drafting of the Bill.

The ATO normally release a law companion guideline in draft form for comment when the Bill is introduced into Parliament. It is finalised after the Bill receives Royal Assent. It provides early certainty in the application of the new law. Please make sure to look for updates before relying on this information.

ANSWER : You need to contact your fund about the value of your pensions and annuities.

The value of your pension or annuity will generally be the value of your pension account for an account-based pension.

Special rules apply to calculate the value of: • lifetime pensions • lifetime annuities that existed on 30 June 2017, and • life expectancy and market linked pensions and annuities where the income stream existed on 30 June 2017

Lifetime pension and annuities These are valued by multiplying the annual entitlement by a factor of 16.This provides a simple valuation rule based on general actuarial considerations. Your annual entitlement to a superannuation income stream is worked out by reference to the first payment entitlement for the year. The first payment is annualised based on the number of days in the period to which the payment refers. (I.e. the first payment divided by the number of days the payment relates to multiplied by 365).

This means that a lifetime pension that pays $100,000 per annum will have a special value of $1.6 million which counts towards your transfer balance cap in the 2017-18 financial year.

For a lifetime pension or annuity already being paid on 1 July 2017, the special value will be based on annualising the first payment in the 2017-18 financial year. This may include indexation, so may be slightly higher than your current annual lifetime pension payments.

Life expectancy and market linked pensions and annuities being paid on or before 30 June 2017 are valued by multiplying the annual entitlement by the number of years remaining on the term of the product (rounded up to the nearest year).

I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

This is part of series on the necessary changes to strategies and opportunities that have resulted from the pending 1 July 2017 changes which will see earnings on transition to retirement (TTR) pensions subject to 15% tax in the fund.

I know this has created concerns with many trustees and advisers around the question of should you access the relief and if so how to actually access the CGT relief provisions. People want to know what factors they must take in to consideration.

Some of the concerns have been clarified by the ATO. One concern was that trustees would need to commute their TTR pensions and roll back into accumulation before 1 July to access the CGT relief provisions. Those relief provisions would allow the cost base of all or selected eligible assets to be reset to the current market value on a date chosen by the trustees between now and 30 June. This CGT relief allows trustees to in effect, retain the tax-free status of unrealised capital gains accumulated prior to 30 June 2017.

The newly issued ATO issued Law Companion Guideline (LCG) 2016/8 has provided some excellent clarification. If your SMSF is operating as an unsegregated fund, the LCG states that member will not need to commute back to accumulation phase to be able to elect to reset the cost base of assets the wish to elect to apply the CGT relief.

It is intended that the same basis should be available for segregated funds, but the ATO has indicated is still reviewing options for how to make this work in practice. I will try to keep this blog updated with any guidance from the ATO on this matter but please make sure you adviser/administrator is on top of these matters. An SMSF that only has TTR or account-based pensions (and no accumulation phase) is automatically classified as a segregated fund. However if you put in a new contribution, as many are, this year then that money goes in to accumulation and the fund becomes automatically unsegregated. So look at your contribution intentions.

All is not lost as the fund would still have been segregated until that contribution was made and you may elect for that date to be the new CGT cost base valuation date.

Conversations need to start with YOUR advisers and administrators to check whether:

you should to continue a TTR pension after 1 July 2017 or to commute back to accumulation phase.

you may have already or can trigger a further condition of release such as leaving any one employment position after age 60. To move from Accumulation or TTR to Account Based Pension

Why are TTR pensions still relevant and for whom

The tax advantages of a TTR pension will reduce when the earnings in the fund start to be taxed on 1 July, but advantages may still arise for members who:

Are over age 60 and can draw tax-free income from the TTR

Wish to start accessing super to top-up income or increase income to pay off debts

Want to be able to nominate an automatic reversionary for estate planning purposes

Can use salary sacrifice or personal deductions to contribute a higher net amount into super than they need to withdraw.

If the TTR pension is no longer required, care should be taken with the commutation and timing of the commutation to ensure the CGT relief provisions can be accessed on any assets they wish to claim the relief for.

Looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Do it! make 2016 the year to get organised or it will be 2026 before you know it.

Please consider passing on this article to family or friends. Pay it forward!

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such

Suppose the government had about A$10 billion a year to fund lower income tax. It could reduce personal income tax by about 6%, or lower each marginal rate by about 1.5 percentage points. Alternatively it could reduce company tax by about 15%, or reduce the current 30% rate to 24%. Which option has more merit?

But the answer as to which is more likely to drive the “jobs and growth” the government has been promising is not that simple. And it is difficult if not impossible to comprehensively model which option is better.

Income tax affects households differently

The two lower income tax options have different implications for the distribution of the tax burden over time. They also impact changes in incentives and rewards to promote a larger economy and higher future living standards, and how much can be clawed back after the first round revenue loss.

A reduction of personal income tax rates provides a more direct and explicit increase in household income, and a quicker gain, when compared with a reduction of the corporate tax rate. Also, lower personal tax rates allow greater government discretion in the distribution of the benefits across households with different incomes, demographic and other characteristics.

Company tax cuts can impact wages and investment

Individuals benefit from lower corporate tax rates with higher market wages. But the higher wage rates will take some years to materialise, and the magnitude of increase attributed to the lower corporate tax rate, versus other factors, is open to debate.

Benefits of a lower corporate tax rate, and in time the flow of these benefits as higher wage rates, involves a chain of decision changes. Australian corporations depend on the savings of international investors for an important share of their investment funds. They use this money to invest in machinery, buildings technology and so forth. But to get it they must show investors they will get a superior return, after Australian corporate income tax is paid, compared to alternative investments in other countries.

If Australia’s company tax rate was cut, this would lower the bar on the required return to attract investment. In the end the lower corporate tax rate induces an increase in investment, resulting in a larger stock of capital and associated technology and expertise. But, this capital accumulation process takes many years.

The enlarged stock of capital, technology and expertise per worker becomes a key driver of increased worker productivity. In time, more productive workers are able to negotiate higher wages. Via this chain of decision changes, employees benefit from the lower corporate tax rate.

Personal tax cuts promote productivity

Lower personal income tax rates provide incentives for a more productive economy and higher living standards through two main mechanisms. Lower marginal income tax rates increase the incentive for, and the rewards from, joining the workforce, working more hours, and putting more into education and skill acquisition. These incentives are especially important for women with children and older workers.

Also, lower personal income tax rates reduce distortions to household decisions on how much to save and where to invest savings in owner occupied homes, other property, financial deposits, shares, superannuation and other options.

The current income tax system imposes different forms of income tax on the different options with very different effective tax rates. For example, income earned on owner occupied housing (of imputed rent and capital gains) is exempt from income tax while the nominal interest on financial deposits (associated with offsetting inflation as well as the returns for delayed consumption) faces the personal rate. Lower personal income tax rates reduce the magnitudes of the distortions caused by different effective tax rates on different saving and investment options.

The difference is in the timing

Lowering the rate of corporate or personal income tax will generate a larger and more productive economy. A larger economy means larger tax bases, and not just income tax, but also GST, payroll and excise. The enlarged tax bases generate larger tax revenues and a partial recapture over time of the first round revenue cost of the income tax rate reductions.

The revenue recapture is expected to be larger for the corporate income tax rate reduction option. With the imputation system, for domestic shareholders a reduction in corporate income tax and less franking credits would be offset by a larger direct personal income tax payment on dividend income.

The greater price sensitivity of the international supply of funds to Australia enticed by a lower corporate tax rate is expected to boost the size of the Australian economy, and tax bases, more than the labour supply response to lower personal tax rates.

Arguably, available models, including those used by government, lack the detail of progressive personal income tax rates for different households, and details of household choices among different investment options with different effective tax rates, to confidently measure the relative effects of the two options.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Recent swings in global currencies have brought exchange-rate risk back to the forefront for investors with overseas exposure in different currencies. Currency risks are risks that arise from changes in the relative valuation of different currencies. These changes can create unpredictable gains and losses when the profits or dividends from an investment are converted from a foreign currency back into Australian dollars.

Any investor who holds stocks, ETFs with the likes of iShares, Vanguard or SPDR or managed funds such as Magellan Global Fund in their SMSF portfolio that invest outside Australia will have some exposure to foreign currency, and where the Aussie dollar exchange rate goes will have an effect on these SMSF portfolios. For instance, a strengthening dollar could negatively impact foreign stock market returns and you should consider this risk in portfolio design.

Interest rates are critical, because when a country’s rate rises, in many cases, so does its currency. Or in our case if the US interest rate rises or at the moment is being held unexpectedly lower by the Us Federal Reserve, our currency’s exchange rate can fluctuate wildly in response to another government’s actions.

Up until recently, this wasn’t much of a worry for Australian investors. Rates were low, the Aussie dollar was getting weaker coming down fro its peak near $1.10 to the US$, and people made money by investing in foreign assets.

Going forward that may not be so easy so its is important for Self Managed Super Fund investors to understand currency exchange risk.

Here is a good video from Blackrock iShares explaining how currency exposure affects returns on international investments.

Now you should note you can also find Currency Hedged ETFs and Hedged Managed funds (as opposed to a Hedge Fund which is totally different) that can help you easily manage the effect of currency on your investments and can be paired with their unhedged counterparts to tailor currency risk while maintaining consistent equity exposure. Of course there is a cost to implementing this protection but that is what good portfolio risk management is all about.

Do you want some more education on why you should consider international investments as part of your SMSF portfolio? then please check out this previous blog about investing internationally via your SMSF.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Until recently, I tended to base retirement planning strategies for clients on a book from the late 90s titled The Prosperous Retirement: Guide to the New Reality by Michael Stein.

Stein divided retirement into 3 stages. Each of these stages affected spending patterns differently, so we could plan for clients’ needs at each stage.

Under the accepted system, the first stage is the Active stage — those first early retirement years when most people are looking to see the world (or at least Australia) and/or engage in other active pursuits. They’ve suddenly got 50-60 more hours per week of free time and are still healthy enough to get out there and make the most of life and opportunities.

The second is the Passive stage — a time when they still look forward to some travel and active pursuits but, with the onset of age-related injuries and illnesses, just not as often as when they first retired. Maybe they’d take shorter trips around parts of Australia rather than long overseas trips through three countries at a time.

Then, eventually retirees move into the last stage, the Sedentary stage, when physical or mental limitations — or setbacks like the death of a spouse or close friends — lead to a much more sedentary, home-based lifestyle. It may also involve losing independence and increasing dependency on others.

The new stage of retirement

In my experience, I’m seeing a new stage of retirement forming, that can have a major effect on people. This new stage has to be managed carefully.

It happens between just retired and the first stage, the Active stage. I call it the Family Support stage.

This is a stage where more and more newly retired people are finding themselves as almost full-time carers for their grandchildren, meaning they cannot plan to travel, undertake volunteering or pursue personal activities due to commitments they make to help struggling children.

This is not the traditional, one-day-a-week “day with nanny and pop,” but a full on five, sometimes six-days-a-week commitment. Often this commitment comes the added cost of taking care of the grandchildren. The costs may not be recovered from their parents, who are often battling a huge mortgage and/or an expensive lifestyle, so the grandparents pick up the tab and deplete their own savings in doing so. You just need to plan for these expenses that can blow out a retirement budget.

I am not saying this is a major negative, as many people cherish time with their grandchildren and would not swap it for the world. However, as a result, they need to be aware that too much time spent in the initial Family Support stage may mean they miss out completely on the most active years of retirement. Some of us may move into the Passive and Sedentary stages much sooner than expected due to illness, and in reality, some of us may not live to reach the later stages.

I usually urge clients to put limits on the commitment to family and put aside “me time” throughout the year for some personal travel and other activities. This does not mean going on holidays with the family to be the babysitters while parents relax. I often recommend that you ensure that Fridays and Mondays are free so you can go away for long weekends so make sure your children know this upfront so they can plan what days they need alternative arrangements.

It is important to put these limits in place at the outset, as kids may come to rely on the arrangements and so they are hard to reverse later. If people do not plan, then they can end up at the wrong end of their 70s with no energy left to embark on their dream retirement.

What do you think? What are your arrangements like in the family? Are child care costs bringing you down? You can comment if you scroll down further.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

OK I am going to be a bit morbid today but based on the lack of preparation by many new clients I think we need to talk death, mental incapacity and other things legal. Why me? Because for some reason many seem scared of lawyers so I want to give you good reasons to overcome that fear!

When did you last review your will, your enduring power of attorney (“EPOA”) and your appointment of enduring guardian (“EG”) documents and of course your SMSF Trust Deed.

As a financial planner we recommend you personally review these documents every 3 years and have a solicitor review them every 5 years. Just take them out (if you haven’t forgotten the “safe place” you put them!) and have a look through them after considering changes to you family circumstances including the following triggers.

So here is a list of the changes to your circumstances that should prompt you to review these documents as soon as possible and which may even require you to create new documents or update existing ones.

These changes include:

1. Setting up an SMSF or making a large or non-standard investment via your SMSF

Ok as a SMSF blog you know I had to deal with this first. When you first set up an SMSF you may have been told to read the deed but did anyone tell you it’s essential to appoint your Enduring Power of Attorney to ensure the SMSF can continue to run smoothly if your health deteriorates.

If you decide to make an unusual investment or loan or arrangement in your fund the you must first know that your SMSF Deed and Investment Strategy allows such a move. So read the SMSF deed and have a written SMSF investment strategy.

2. Marriage automatically revokes a will, unless the will was made in contemplation of marriage. After you marry, you should make a new will.

Your Power Of Attorney is not revoked by marriage. If your EPOA was signed before your marriage it is still effective. However, if, for example, your EPOA appointed your former spouse, you may wish to formally revoke the EPOA and make a new EPOA appointing another person as your attorney.

Your appointment of an Enduring Guardian is revoked on marriage even if you appointed your current spouse as your EG. After marriage, you need to sign a new appointment of EG document.

If you wish to bring your new spouse into your SMSF then you need to follow the rules of appointing a new trustee or director and accepting a new member. Read the deed and the company trustee constitution. Don’t forget to notify ASIC.

Check your Binding Death Nomination and any reversionary pensions.

3. Separation

Unlike marriage, separation does not affect the validity of your will. As a result, there have been several cases where a couple have separated, one spouse has died after separation but before the divorce and their former spouse has been entitled to the whole of their estate either due to their failure to update their will after separating or by not having any will in place at all and the rules of intestacy applying in favour of their former spouse.

Similarly, your EPOA and EG documents will not be affected by separation. You should consider whether you need to revoke the existing appointments and make a new EPOA and appoint a new EG after separating

There maybe some allowances for the transfer of SMSF assets in the event of a finalised property settlement and again you need to understand the exceptions that apply once the financial/property settlement has been agreed and signed off and read the deed before assuming you can move or split assets.

I know I am repeating myself but Check your Binding Death Nomination , insurance nominations and any reversionary pensions.

There are specific rules allowing the transfer of SMSF assets in the event of divorce without triggering CGT or Stamp Duties and again you need to understand the exceptions, the process and read the deed before assuming you can move or split assets.

Divorce does not revoke your EPOA or EG documents appointing your former spouse. In order to cancel these appointments, you need to sign a revocation and serve it on your former spouse.

Divorce only revokes or cancels any gift made in your will to your former spouse. It also cancels your spouse’s appointment as executor, trustee or guardian in your will. It does not cancel the appointment of your former spouse as trustee of property left on trust for beneficiaries that include the children of you and your former spouse. However this will not apply if the Court is satisfied you did not intend to revoke the gift or the appointment by the divorce. Instead of leaving these matters to the Court, if you have not made a new will after separating, it is imperative that you make a new will as soon as possible after your divorce.

5. Birth of an additional beneficiary.

This is likely to necessitate a change to an existing will unless your solicitor has catered for future arrivals. This is another care where being too specific can require frequent updates and legal fees.

6. Death of a spouse, an existing beneficiary, your executor, your attorney or your EG.

Do you need to appoint a new individual SMSF trustee or director to keep your SMSF compliant?

7. A change to the needs of your children or grandchildren

Review your will and look at Testamentary Trusts or Special Disability Trusts. Last thing you want is for your beneficiary to lose their Disability Pension because of an inheritance.

8. A material change in your financial circumstances.

Have you sold or transferred assets that would have formed part of your estate? Make sure you have not mistakenly left someone with nothing.

If you have been bankrupted or considering filing for bankruptcy then you will not be able to continue as a member of your SMSF. You need to look at rolling to a Small APRA fund or a retail fund.

You also need to have your own parents if still with us to reconsider any direct inheritances to you as your creditors may grab them.

9. A breakdown in a relationship with relatives or friends who you may have appointed as:

the executors of your estate;

beneficiaries under your will;

guardians of your minor children; and/or

your attorney or your EG

10. The decline in health or some other change of circumstances

For example bankruptcy of a child (let’s face it, everyone under 30 thinks they are an entrepreneur and that’s going to lead to trouble!) so that, for example, a beneficiary under your will may no longer be able to manage their own finances,

The person you appointed as your executor, your attorney or your EG may no longer be suitable or capable of administering your estate or managing your affairs or making personal decisions for you.

If it is you or your spouse who have been diagnosed with onset of dementia or Alzheimer’s for example then you need to decide if you should have your EPOA step in now rather than later to help manage your self managed superannuation fund.

11. Retirement

Retirement often results in people restructuring their affairs. This is an ideal time to be proactive in your estate planning and possibly consider setting up tax effective arrangements through your will that you have not done previously.

Have you started a pension in your SMSF? Have you documented it properly including a reversionary pension election or Binding death nomination?

Have you sold assets like a business premises or investment property previously allotted to someone specific in your will? Are they losing that benefit!

When any of these events occur, you should review your SMSF and estate planning documents and, if necessary, create new documents taking into account the relevant change of circumstances. Don’t be afraid to ask advice but make sure you are dealing with a specialist in each area.

If you have been paying attention you will notice I said “12 Triggers”. Well I’ll leave the 12th for you to add in the comments section below. Come on I must have missed a few and I know some really sharp minds read this blog so help us out! I will add the best one to this list after a month or add my own, so why not subscribe to the blog in the “Free email updates” section on the left hand-side of the page.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Adapted from an original article “Time for an estate planning “check-up” by BWS Lawyers

Blog Stats

463,214 hits

Blogroll

Verante Financial Knowledge Centre
We understand that the financial industry is full of jargon and concepts that can be difficult for people to get their head around or remember. So to learn more about money and finance at our Financial Knowledge Centre is a great place to start.

Company website

Verante Financial Knowledge Centre
We understand that the financial industry is full of jargon and concepts that can be difficult for people to get their head around or remember. So to learn more about money and finance at our Financial Knowledge Centre is a great place to start.

Government website

Industry Website

Newsletter

Verante Financial Knowledge Centre
We understand that the financial industry is full of jargon and concepts that can be difficult for people to get their head around or remember. So to learn more about money and finance at our Financial Knowledge Centre is a great place to start.